QGEN: Predator and Prey

On Monday, we got earnings from Qiagen (Nasdaq: QGEN) – a leading supplier of sample preparation kits that help researchers collect and purify DNA, RNA and proteins.

Sales increased 11% to $265.9 million. And net income rose 25% to beat expectations. Management also took the opportunity to reaffirm guidance.

However, shares barely budged on the positive news. Chalk it up to general market jitters and perhaps unrealistic investor expectations (i.e. – they wanted more profit growth).

Whatever the cause, I assure you the company remains fundamentally sound…

The company boasts enviable recurring revenue base. Approximately 85% of sales came from consumable products in the last quarter.

It’s well positioned for growth in emerging markets. For example, management expects China revenue to double this year. That’s on the heels of a 90% increase last year.

Qiagen should also benefit as other countries begin to offer human papillomavirus (HPV) tests. The company’s already the leading supplier in many markets, including the United States where it controls 95% of the market.

As CEO Peer Schatz sums it up, “Our markets remain stable across our customer segments and show promising growth opportunities.” Indeed.

Not to be overlooked, either, is the company’s financial fitness. It’s sitting on $844.2 million in cash, enough to pay off almost all of its outstanding debt ($871.8 million).

Granted, management hinted at using the cash to hunt for additional acquisitions to accelerate growth. (Qiagen already completed three small acquisitions this year.) But that doesn’t prevent it from being hunted, too.

Fact is, all the fundamentals listed above continue to make Qiagen a prime takeover target… and a compelling stock to own. It shouldn’t be long before investors – or a potential suitor – wake up to this reality.

Once the price action improves, we’ll quickly move the company back to our buy list. For now, mind your stop and hang tight.

If you’re looking to put new money to work this week, consider Applied Signal Technology (Nasdaq: APSG) or Endologix (Nasdaq: ELGX). Both remain attractive at current levels. Otherwise, we’ll be in touch next week with a new recommendation.

Good investing,

Louis Basenese

Takeover Target Portfolio

Stock: Charles River Laboratories (NYSE: CRL)
Recommended Date: 7/12/10
Recommended Price: $34.50
Current Price: $29.84
Comments: Hold.  Sell stop is $27

Stock: Applied Signal Technology (Nasdaq; APSG)
Recommended Date: 7/8/2010
Recommended Price: $20.01
Current Price: $19.68
Comments: Buy for $20 or less. Sell stop is $14.50

Stock: Endologix (Nasdaq: ELGX)
Recommended Date: 6/4/2010
Recommended Price: $5.00
Current Price: $4.01
Comments: Buy for $5 or less. Sell stop is $3.25.

Stock: Qiagen (NYSE: QGEN)
Recommended Date: 3/25/2010
Recommended Price: $23.19
Current Price: $18.01
Comments: Hold.  Sell stop is $17.50.